Exclusive: Trump Calls Meeting on Biofuels Policy after Refiner Bankruptcy

February 26, 2018

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by Jarrett Renshaw (Reuters) U.S. President Donald Trump has called a meeting early next week with key senators and Cabinet officials to discuss potential changes to biofuels policy, which is coming under increasing pressure after a Pennsylvania refiner blamed the regulation for its bankruptcy, according to four sources familiar with the matter.

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Trump’s engagement reflects the high political stakes of protecting jobs in a key electoral state. Oil refiner Philadelphia Energy Solutions (PES), which employs more than a thousand people in Philadelphia, declared bankruptcy last month and blamed the regulation for its demise.

The meeting, scheduled for Tuesday, will include Republican Senators Ted Cruz of Texas, Chuck Grassley and Joni Ernst of Iowa, along with Environmental Protection Agency Administrator Scott Pruitt, Agriculture Secretary Sonny Perdue, and potentially Energy Secretary Rick Perry, according to the four sources, who asked not to be named because they were not authorized to speak publicly on the matter.

One source said the meeting would focus on short-term solutions to help PES continue operating. PES is asking a bankruptcy judge to shed roughly $350 million of its current RFS compliance costs, owed to the EPA which administers the program, as part of its restructuring package.

The other sources said the meeting will consider whether to cap prices for biofuel credits, let higher-ethanol blends be sold all year, and efforts to get speculators out of the market.

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Other issues may have contributed to PES’s financial difficulties. Reuters reported that PES’s investor backers withdrew from the company more than $594 million in a series of dividend-style distributions since 2012, even as regional refining economics slumped.

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In recent months, for example, the EPA has contemplated expanding its use of an exemption available to small refineries - a move that would likely push down RIN prices, but which both the oil and corn industries have said would be unfair.

Cruz last year proposed limiting the price of RINs to 10 cents, a fraction of their current value – an idea that was roundly rejected by the ethanol industry as a disincentive for new ethanol blending infrastructure investment.

Senator John Cornyn, also a Texas Republican, is preparing draft legislation to overhaul the RFS in Congress that would include the creation of a new specialized RIN credit intended to push down prices - but it too faces resistance from both the corn and oil lobbies. READ MORE

TRUMP TO CONSIDER PRUITT, PERDUE RFS PROPOSAL (Politico's Morning Energy)

Trump should be great for oil and gas. He’s not. (Axios)

The Ethanol Debate Matters, But Is Unlikely To Change (Forbes)

Plunge in Market for Ethanol Credits Spurred by Trump Review (Bloomberg Markets)

RIN prices fall on reports of planned Trump meeting on biofuels (Platts)

US RINs prices continue to slide after mixed reports of RFS reform meeting (Platts)

Ethanol Blog: D6 RINs Drop 10 Cents on Uncertainty Over RFS Reform (DTN The Progressive Farmer)

RFS White House Meeting Rumored -- Biofuel Groups Say They Haven't Been Invited to RFS Meeting Reportedly Called by Trump (DTN The Progressive Farmer)

BIOFUEL GROUPS NOT INVITED TO RUMORED RFS MEETING CALLED BY TRUMP (KTIC)

Trump calls meeting with Cabinet officials on biofuels policy: reports (The Hill)

THE RFS AND A BIOFUEL FUTURE (Minnesota Bio-Fuels Association)

SENDING OUT AN RFS, TO THE WORLD (Politico's Morning Energy)

RFA Statement on White House Meeting to Discuss the RFS (Renewable Fuels Association)

Cruz headed back to White House on ethanol talks (Houston Chronicle)

Excerpts from Politico's Morning Energy: Pruitt and Agriculture Secretary Sonny Perdue will meet with Trump today to present a package of changes to the Renewable Fuel Standard to end tensions over the program between corn farmers and refiners. The two men will propose capping the price of biofuel credits (called Renewable Identification Numbers), a year-round waiver for the sale of 15 percent ethanol gasoline, the creation of credits for exported ethanol, and a transparency measure intended to cut Wall Street investors out of trading in the program. All of the proposals would be executed administratively, rather than legislatively. The pitch to Trump precedes a Tuesday meeting between the president and Sen. Chuck Grassley, Joni Ernst, Ted Cruz and Pat Toomey.

Basically the Cruz proposal: Cruz has been proposing the waiver-for-RIN-cap package for months now and getting nowhere with corn-staters. The addition of allowing credits for exports, which Pruitt floated and abandoned last year after an uproar from Gang Grain, seems unlikely to add to its appeal, though ethanol producers have expressed openness to the transparency measure. A refining source says the legal authority for some of these measures is "highly doubtful, but by the time the rule is final and then litigated, authors will be long gone from the scene. Think at least 2-2.5 years. God only knows what gyrations the market will endure in the interim."

Independent refiners are in: Another source says the proposals "would result in more predictability in the RINs market and in expanded biofuels sales and higher blends. That's the sort of win-win Cruz and Toomey seem to have been referring to. And this process seems not to require legislative action, therefore ensuring faster results."

Catching the president's eye: Ahead of the Tuesday meeting, Fuels America will launch a TV ad on "Fox & Friends" in the D.C. market starting today through Tuesday. The ad thanks Trump for his commitment to the RFS. Watch it here. READ MORE

Excerpts from Axios: Trump is poised to impose steep tariffs on steel and aluminum imports by mid-April. It'd be a big defeat for major oil and gas companies that lobbied hard against the penalties. They say tariffs will raise pipeline costs because there’s not enough domestic steel available.

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The energy industry is also worried about what changes the administration is trying to make to the North American Free Trade Agreement. Causing the most anxiety: Reports that a provisionallowing investors to sue countries for alleged discriminatory practices is being scrapped as part of negotiations, which are getting underway in Mexico City this week.

The provision, known as investor state-dispute settlement, is critical to encouraging American companies to keep investing in Mexico’s burgeoning oil industry, according to industry lobbyists.

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The White House is frustrated by that lack of unity, which is a factor stalling any resolution to the issue (RFS/PES bankruptcy/RINs prices), according to an administration official and multiple industry executives.

“They’re so sick of this issue. I don’t blame them,” said Stephen Brown, a lobbyist at refiner Andeavor. “So is the Hill, reporters having to write the same story over and over, and the folks like us working it.”

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I wrote last month about how Interior Secretary Ryan Zinke’s surprise reversal promising to rescind Florida from offshore leasing consideration was an early 2018 stumble for the Trump administration.

That kerfuffle also escalated simmering tensions between the White House and the American Petroleum Institute, according to multiple industry and administration officials. The administration believes the organization didn’t do enough outreach to stakeholders in coastal states like Florida, while API criticized Zinke's reversal.

“We appreciate everyone’s criticism,” API President Jack Gerard told me in response to the administration's critique of API. “The reality is, we’re the ones leading the effort and to date have had good, bipartisan and strong support.”

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No one thinks the latest White House meetings on ethanol will spell the end of that dilemma. READ MORE

Excerpts from Forbes: Blaming the RFS for bankruptcy is questionable as other refineries seem to have adapted just fine.

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However, alcohols, like ethanol, do enable higher-octane and higher compression ratios in engines and therefore higher performance. While alcohols have lower energy density, car manufacturers and engine designers like alcohol because they can design better performing engines, which might make up for some of that loss while getting more power and acceleration. ...

President Trump and a handful of senators seem to be debating around the edges of the RFS. If that is the case, then we will not notice the consequences. They should consider either repealing the future increases in mandated biofuel consumption or supporting the research needed to increase the EROI of biofuels. Achieving the latter could be a real long-term boon for farmers. But to overcome the physical constraints and technological limits requires a national dedication to research, which is something we haven’t shown much stomach for. READ MORE

Excerpts from Politico's Morning Energy: Today's the big day for corn farmers, oil refiners and their champions in the Senate, as Sens. Pat Toomey, Ted Cruz, Joni Ernst and Chuck Grassley will have a meeting with President Donald Trump and his top advisers to see if there's some kind of deal to be struck in the Renewable Fuel Standard. They are scheduled to gather in the Oval Office at 11 a.m., according to Trump's daily schedule.

What's on the table: EPA Administrator Scott Pruitt and Agriculture Secretary Sonny Perdue met Monday with Trump to offer a package of changes that would include creating biofuel credits for exported ethanol, a cap on credit prices, a waiver for 15 percent ethanol gasoline blends and some transparency measures. Few details were forthcoming from that meeting, though ME hears they made progress toward a deal they hope corn backers can accept.

Drawing the line: Toomey is strongly backing administrative action by EPA to tweak the regulations. "I would support legislation that would deal with it, but [administrative action] would be much quicker," Toomey told reporters. Of course, the legality of administrative moves, such as possibly capping the prices of biofuel credits or RINs, remains an unsettled question likely to provoke years of litigation. But, as one refiner noted, by the time it's resolved, most of the current players could be gone.

Gang Grain has never been into this idea: Grassley and ethanol producers rejected the credit cap proposal months ago, and on Monday trade associations representing corn, wheat, sorghum and soybean farmers, along with the National Farmers Union and the American Farm Bureau Federation sent a letter to Trump asking him not to weaken the RFS.

Carper backs RIN fix: The top Democrat on the Environment and Public Works Committee, Tom Carper , told ME he would support a move to make the RIN market less volatile and more transparent but said he wasn't sure if it could be done administratively. Fixing the RIN market, Carper said, would "not do harm to the Renewable Fuel Standard" but would "frankly help a number of refineries that are paying an arm and a leg for RINs when they never expected to do that." Some of Carper's Delaware constituents work for the Philadelphia-area plants claiming damage from the RFS, including the now-bankrupt Philadelphia Energy Solutions. READ MORE

Excerpt from Renewable Fuels Association: This afternoon (March 1, 2018), President Trump, several members of his cabinet, and a handful of senators met with a number of ethanol and oil industry stakeholders, including RFA members, to discuss the Renewable Fuel Standard. Renewable Fuels Association President and CEO Bob Dinneen had the following statement:

“We appreciate that President Trump took time to sit down with leaders from the ethanol and gasoline marketing industries, including RFA members, to discuss important issues related to the RFS and the rural economy. We continue to believe the appropriate response to unfounded concerns about Renewable Identification Number (RIN) prices is to expand ethanol use by providing RVP parity, allowing E15 and higher blends to be sold year round. We are pleased today’s conversation focused positive attention on this important issue. We look forward to continued discussions with the White House and welcome additional opportunities to explain why Sen. Ted Cruz’s notion to cap the price of RINs would be disastrous for the ethanol industry, farm economy, and American consumers.” READ MORE